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Exam 20: The Islm Model

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Question 21

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If the economy is on the LM curve,but is to the left of the IS curve,aggregate output will ________ and the interest rate will ________.

A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall

E) B) and D)
F) B) and C)

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Question 22

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As interest rates rise,the opportunity cost of holding money ________ and the demand for money ________.

A) rises; rises
B) rises; falls
C) falls; rises
D) falls; falls

E) C) and D)
F) B) and D)

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Question 23

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Keynes was especially concerned with explaining the

The marginal propensity to consume (mpc) can be defined as the fraction of

In the Keynesian framework,as long as output is ________ the equilibrium level,unplanned inventory investment will remain ________ and firms will continue to lower production.

Use the following situation (20-2) to answer the question : Assume a closed economy. Suppose that autonomous consumption equals $400, planned investment equals $500, government expenditure equals $200, net taxes equals $50, and the mpc equals 0.9. -Using the information in Situation 20-2,if taxes increase by $10,then the equilibrium aggregate output will change by

Everything else held constant,if aggregate output is to the ________ of the LM curve,then there is an excess supply of money which will cause the interest rate to ________.

An increase in interest rates ________.

Everything else held constant,if aggregate output is to the right of the LM curve,then there is an excess ________ of money which will cause the interest rate to ________.

The ________ describes the combinations of interest rates and aggregate output for which the quantity of money demanded equals the quantity of money supplied.

If actual output is less than equilibrium output,firms will ________ output to keep from ________ inventories.

The ________ traces out the points for which total quantity of goods produced equals total quantity of goods demanded.

In the Keynesian framework,as long as output is below the equilibrium level,unplanned inventory investment will remain negative,firms will continue to ________ production,and output will continue to ________.

If the economy is on the IS curve,but is to the right of the LM curve,aggregate output will ________ and the interest rate will ________.

When interest rates fall in the United States (with the price level fixed) ,the value of the dollar ________,domestic goods become ________ expensive,and net exports ________.

If the consumption function is expressed as C = a + mpc × Y_D,then "mpc" represents

Everything else held constant,if aggregate output is to the ________ of the LM curve,then there is an excess ________ of money which will cause the interest rate to rise.

Keynes believed that an economy could attain an equilibrium level of output

If the economy is on the IS curve,but is to the left of the LM curve,aggregate output will ________ and the interest rate will ________.

The money market is in equilibrium ________.